rules of debit and credit
The single biggest hurdle for beginners is figuring out, for any given transaction, which account to debit and which to credit. The rules of debit and credit are the fixed answer key. They are not arbitrary; they all flow from one goal — keeping the accounting equation, Assets = Liabilities + Equity, in balance after every entry, with revenue and expense feeding into equity.
The rules sort all accounts into five elements and assign each a side that increases it. Assets increase with a debit and decrease with a credit. Liabilities increase with a credit and decrease with a debit. Owner's equity increases with a credit and decreases with a debit. Revenue (which grows equity) increases with a credit. Expenses (which shrink equity) increase with a debit. A common memory aid is DEAD-CLIC or DEALER, but the underlying logic is simply: the left side of the equation (assets) is mirror-imaged from the right side (liabilities and equity), so they take opposite increasing sides.
Why it works: because assets sit on the opposite side of the equation from liabilities and equity, giving them opposite increasing sides guarantees that any balanced transaction keeps both sides equal. Buy equipment on credit: debit Equipment (asset up) and credit Accounts Payable (liability up) — both sides of the equation rise by the same amount. Master these five lines and you can journalize almost any everyday transaction; everything else in bookkeeping builds on them.
A company borrows 8,000 dollars from a bank. Cash (an asset) goes up, so debit Cash 8,000. The bank loan (a liability) goes up, so credit Notes Payable 8,000. Asset rule and liability rule together keep the equation balanced.
Debit raises an asset; credit raises a liability — both sides of the equation move up together.
Memory tricks like DEAD-CLIC help recall the directions, but they are not a substitute for understanding that the rules exist only to keep Assets = Liabilities + Equity in balance.